Final Special Economic Zones regulations: Department briefing

Meeting report

Mr Sipho Zikode, Deputy Director General, Industrial Development Division: dti, briefed the Committee about the key highlights regarding the SEZs. Amongst those he mentioned, he stated that the:

• SEZ Act is in place and operational as of 09 February 2016
• SEZ Regulations have been approved and gazetted on 09 February 2016
• SEZ incentive package has been developed and approved
• SEZ Fund Guidelines have been developed and approved
• SEZ Board has been established

The SEZ Fund consists of money voted by Parliament as part of an appropriation of the Department and interest on investments. All monies distributed from the Fund must be used to achieve the objectives of the SEZ Act. The Director General is required to monitor the use of funds distributed and report to the Minister on an annual basis.

The funds are administered and managed in accordance with the Public Finance Management Act, 1999 (Act 1 of 1999). The Minister is required to establish an Adjudication Committee (chaired by the DG) to consider applications for funding and recommend to the Minister applications to be approved for funding. Any SEZ Fund money not required immediately may be invested in accordance with a PFMA aligned investment policy approved by the Minister, and may be drawn when required.

Any sphere of government state owned entity or PPP wishing to establish a licensee/SEZ entity; an operator appointed by a Public Private Partnership; state owned operators; and qualifying enterprises already located within the Special Economic Zones may apply for funding.

When applying for designation, any sphere of government, a public entity, a municipal entity or a PPP may apply to the Minister for a specified area to be designated as an SEZ. The application must comply with the requirements in section 23(2) and section 23(3) of the Act by indicating the following:

• Manufacturing activity or internationally tradable service that the SEZ intends to engage in
• Whether the SEZ intends to target a local or export market
• Where the SEZ intends to be located, either anywhere in the SA, port of entry or in a custom controlled area

The application must be accompanied by a feasibility study required in terms of the SEZ Act and the Regulations, and the applicant must submit an application addressed to the Chairperson of the Advisory Board. The Advisory Board should, amongst other things, provide the applicant with a written acknowledgement of receipt of the application within five days of receipt of application; assess the application to determine whether the application is complete, and must inform the applicant in writing of any outstanding information or documents required within thirty days of receipt of the application; request such further documentation or particulars in writing from an applicant relating to any matter pertaining to the application as may be deemed necessary; and conduct such investigation in terms of the Act into any matter related to the application as may be deemed necessary in the circumstances.

The Advisory Board must consider the application and recommend to the Minister whether or not an area must be designated as an SEZ, within five months of receipt of the complete application as contemplated in the sub-regulation. The Minister must, within two months of receipt of the recommendation of the Advisory Board, as contemplated in the sub-regulation decide whether or not to designate area as an SEZ as contemplated in section 23(6) of the Act.

If the Minister decides not to grant the application to designate a specified area as a Special Economic Zone, the Minister must inform the applicant of the decision in writing; and provide the applicant with reasons for the decision. An unsuccessful applicant may submit a new application for a specified area to be designated as an SEZ as provided for in the Act.

Businesses that may locate to an SEZ are businesses conducting manufacturing activities; businesses performing internationally tradable services; or providing warehousing, distribution and logistic services. A service or business, other than a service or business contemplated in the Regulations, may apply to locate to an SEZ provided that such a service or business provides services or sells goods which support the businesses located in the SEZ; and the number of services or businesses and the area they occupy in the SEZ does not exceed the number and area provided for in the guidelines. A business that has been approved to locate to the SEZ shall not by virtue of such approval qualify for support measures contemplated in Regulation 7.

In order to locate to an SEZ, the application must be in writing and be submitted to the Chairperson of the relevant SEZ Board and comply with the Act and the Guidelines in the Regulations. It must contain the licenses, registrations or permits required by the service or business to conduct its operations as well as a business plan. Then the SEZ Board should provide the applicant with a written acknowledgement of receipt within 7 days of receipt of the application and may conduct such investigation and/or inspection of the applicant or request the applicant to make oral submissions to the SEZ Board as may be deemed necessary in the circumstances.

An application for an SEZ operator permit must be in writing and be submitted to the Chairperson of the Advisory Board. An application for an SEZ Operator permit must, amongst other things, contain:

• The name, address, and contact information of the applicant
• Confirmation in writing that the SEZ Board has complied with section 31 of the Act when appointing the applicant
• The proposed contractual agreement between the applicant and the SEZ Board
• An operational plan
• Information on the applicant’s current size, capacity, financial status, access to financial resources, references and operational standards

The Advisory Board should provide the applicant with a written acknowledgement of receipt within 7 days of receipt of the application and may conduct such investigation and/or inspection of the applicant or request the applicant to make oral submissions to the Advisory Board as may be deemed necessary in the circumstances. If the Minister decides not to grant the application for an operator permit, the Minister shall inform the applicant of his/her decision in writing and provide the applicant with reasons for the decision. The unsuccessful applicant may submit a new application for an operator permit, as provided for in these Regulations.

The Advisory Board shall report to the Minister twice in any financial year on the progress relating to the establishment and development of SEZs in the Republic.

The Report must, amongst other things, include:

• The number of applications for designation as an SEZ during the period under review
• The number of applications for designation as an SEZ that have been approved during the period under review
• The number of applications for operators permit received during the period under review
• The number of applications for operators permit that have been approved during the period under review
• A summary of any challenges in establishing and developing SEZ including proposals on dealing with the challenges identified

An industrial development zone operator must, within twelve months of commencement of the Act, submit a plan with timelines to the Director General on how the industrial development zone would comply with the framework regulating the Special Economic Zones as contemplated in section 39(5) of the Act.

A feasibility study as contemplated in section 23(3)(b) of the Act must comply with the published Guidelines and must provide, amongst other things:

• Statement of intent and executive summary
• General overview of the area where the proposed SEZ is to be located
• Economic rationale for the application for designation of the proposed SEZ
• Social impact of the proposed SEZ
• Business plan for the proposed SEZ
• Risk profile of the proposed SEZ

Some of the guidelines for the SEZ designation process should include some of the following:

• A concept note which would be evaluated, analysed and reported on in order to inform a decision to continue
• A pre-feasibility study
• A comprehensive feasibility study
• A business plan
• A complete application for an SEZ application technical evaluation and analysis
• Recommendations to the SEZ Advisory Board for a final decision.

Discussion

Mr W Faber (Northern Cape, DA) remarked that he had not heard anything about SEZs in the Northern Cape and wanted to know why they have not been established, and, if they are established, where their location is. He asked if there were an SEZ, in Springbok, how would the people participate in that economic activity.

Mr Tau explained that there are currently 7 SEZs in the country (2 in KwaZulu-Natal, 2 in Eastern Cape, 1 in Western Cape, 1 in Gauteng, and 1 in Free State). Those in the Eastern Cape and KwaZulu-Natal are operating. The Western Cape SEZ in Saldanha is developing infrastructure and the rest are in the set-up phases. Now that there are incentives, all of them are showing prospects.

There is a proposal to establish an SEZ in the Northern Cape. The Department is facing the challenge of capacity on the ground. The land issue has already been discussed with the municipality in Upington. It is not practical to have an SEZ in every municipality. In a meeting held with MECs of provinces, it was agreed there must be economic activities in the SEZs. The SEZs are not the only tools for promoting economic growth. Other tools include AgriParks and the revitalised Industrial Parks. Efforts are being made to ensure no districts are left behind.

The involvement of people in the SEZs requires partnership between the three spheres of government. People through their representatives should approach these institutions with their initiatives. The private sector is in the middle of these processes. There are platforms where the dti engages about initiatives that are viable. It is ensured that communities are represented in the planning and development of an SEZ, so that they could share their ideas and frustrations.

Ms Z Ncitha (Eastern Cape, ANC) asked how the SEZs are performing in the economy of the their regions and provinces. She further wanted the viewpoint of the Department regarding the partnership between Buffalo City and the IDZ because that arrangement does not involve any monetary transaction. She enquired if the Department had a plan in place to make sure the already existing SEZs complement each other instead of competing.

On the performance of the SEZs in their regions, Mr Tau reported that the current SEZs are getting their allocations from the dti. The Eastern Cape is the only province that always tops up the allocation. SEZs belong to the provinces and the money from the dti is not sufficient because the country is looking for 10 SEZs in total. So, provinces have to add something on the allocations. The current SEZs are doing well and information would be delivered to the Committee about what they have harvested.

The partnership between Buffalo City and the IDZ is commendable because developments that happen develop the municipality as well. The dti would ensure the partnership remains strong.

Mr B Nthebe (North West, ANC) asked the Department to give more information on the Platinum IDZ. He further questioned why eligibility for applying for an SEZ is limited to 3 areas and not focus on local development rather than the international aspect.

Mr Tau responded there is very slow progress on the Platinum IDZ. Its province indicated no interest in the project and it had to be cancelled. Now the province changed its mind and filed an application because its focus is on agro-processing. With regard to the eligibility to apply, the SEZ is an instrument of industrial development. The focus is on manufacturing, food, and agro-processing. The focus is on trying to promote investments that are grounded and permanent, not investments that are going to disappear soon. The investments should be anchors. The challenge is for policymakers to balance things and take into account what is uniquely suitable for each province.

Ms E van Lingen (Eastern Cape, DA), asked what the influence of the regulations is going to be on the current operations of the SEZs; how the regulations are going to affect the problem of land; and if there would be enough money to complete the SEZs in Gauteng and Western Cape seeing that there are concerns of a shortage of money for the other SEZs.

Mr Tau, on the influence of the regulations, said the dti would within a year ensure compliance with the Act. The new regulations make provisions for the SEZ incentives, Advisory Boards, Adjudication Committees, clear processes, and reporting procedures. The Act also makes provisions for things that were not there before. On the land problem, most land is in private hands. The challenge is that when the land has to be used for an SEZ, the price goes up. Most of the land is owned by the SEZs. For future SEZs there are legally binding contracts regarding land matters. The application letter has to produce proof of the owner of the land.

With regard to money to complete the SEZs in Gauteng and the Western Cape, the dti and National Treasury agreed that the provinces must start supporting the SEZs in their regions. Provinces are expected to make financial contributions to the SEZs. Other government departments had roles to play to ensure things went according to plans in terms of infrastructure development.

Ms M Dikgale (Limpopo, ANC) asked why Limpopo is excluded from the list of SEZs. She also asked how community participation is going to be accommodated in the establishment and running of the SEZs.

Mr Tau said there is an SEZ in Musina. There are investors who want to bring in investment. Progress is taking place. About community participation, incubation is one tool that is going to be used to address the problem of SMEs in those SEZs in the provinces.

The Chairperson asked the dti to provide the Committee with timeframes of work in progress between the National Treasury and SARS regarding the implementation of tax incentives. He further asked how far the Department is regarding the establishment of an Adjudication Committee by the Minister. Lastly, he remarked that the Committee visited an IDZ in the North West around Pilanesberg. The building had less activity, and people were complaining of having no access to markets.

Mr Tau, regarding work between National Treasury and SARS, reported that incentives were in place and the dti are currently working on the regulations for incentives of the companies that would be working with the SEZs. The IDZs are now going to be classified as SEZs according to the new Act that is still to be proclaimed. Concerning the Adjudication Committee, he said the dti first looked at the nature of the investment and its viability, and then make recommendations to the Minister.

On no access to markets, all provinces are working on initiatives for SEZs. The challenge is that provinces have difficulty in proving that such projects are going to work. Some state that an investor has R10 billion but the state has to fork out R1 billion as a contribution. That does not work. The investment plan has to meet all the requirements.

The meeting was adjourned.